The Trade Facilitation Agreement

May 2017 | EXPERT BRIEFING | GLOBAL TRADE

financierworldwide.com

On 22 February 2017 the World Trade Organisation’s (WTO) Trade Facilitation Agreement (TFA) finally came into force, following its ratification by two-thirds of the WTO membership, including the world’s key trading nations. The TFA, which was signed in December 2013, is historical as it is the first multilateral trade agreement adopted since the creation of the WTO in 1995.

The TFA’s objective and measures

Customs procedures typically differ from country to country, and the amount of ‘red tape’ faced by exporters can be a stumbling block hindering the movement of goods across borders. The TFA aims at expediting the movement, release and clearance of goods (including those in transit) and improving customs cooperation, by streamlining international standards in customs practices.

The measures envisaged by the TFA are far reaching. The TFA provides, for instance, for the simplification of trade documents, the automation of the border process, the prompt publication and availability of trade-related information, the establishment of enquiry points to answer possible enquiries of governments and traders and the possibility of requesting advance rulings and the right of appeal or review of the decisions taken. These and other measures, such as the obligation to notify enhanced controls or inspections, the reduction of fees and charges, the cooperation between customs authorities, faster procedures for the release and clearance of goods (including post-clearance audits) and the obligation to facilitate the transit of goods by eliminating unnecessary regulations and formalities, are among those which will have the greatest impact on international trade.

Concerning the simplification of trade documents, each member must review its own formalities and documentation requirements in order to ensure that they are adopted or applied with a view to allowing a rapid release and clearance of goods, and to reduce time and costs of compliance for traders and operators. Members should also establish a single window for the submission of documentation and data for importation, exportation and transit of goods. Members must also make sure that their formalities are the least restrictive measures among the alternatives which are available to fulfil the relevant policy objectives and are not maintained when they are no longer necessary. Moreover, each member must apply common customs procedures and uniform documentation requirements, while fees and charges must be limited to the cost of services and penalties, commensurate with the degree and severity of the breach. Information must be clear and available online, and must be published in a non-discriminatory and easily accessible manner. Each member also has to notify a list of websites where relevant information will be available to the Trade Facilitation Committee, a forum composed of members for the purpose of consultation on the matters related to the operation and furtherance of the agreement.

Advance rulings will help a faster release of goods, as documentation requirements can be checked before the goods enter the territory of a member. The same applies to payment of duties, which can be collected in advance or be guaranteed with a deposit. The provision of cooperation mechanisms between customs authorities will ensure the exchange and protection of confidential information between authorities.

With respect to the release and clearance of goods, the TFA imposes pre-arrival processing of import documentation and the establishment of post-clearance audits, which, together with the separation of release from final determination of customs duties, taxes, fees and charges, will allow importers to receive their goods earlier, will allow authorities to save money and resources, and will allow exporters to trade more easily. In order to optimise post-clearance audits, risk management strategies will have to be laid out by members.

The TFA’s benefits and implementation

There is a general consensus forming which suggests that the entry into force of the TFA will bring about significant benefits. The World Bank estimated that the final implementation of the TFA could generate up to $1 trillion of global economic activity. The OECD also indicated that the TFA could reduce trade costs by between 12.5 percent and 17.5 percent, and that the greatest benefits will be experienced by low and lower middle income countries. WTO experts also agreed on the beneficial effects of the TFA on trade costs reduction, which they estimated to be an average of 14.3 percent. Experts are also of the view that the measures introduced by the TFA will increase the level of international trade more than general abolitions of tariffs would do.

The full implementation of the TFA will be particularly beneficial for small and medium-sized enterprises (SMEs), for whom customs procedures can be particularly burdensome. Developing countries and least developed countries (LDCs) will attract more imports and their exports will be facilitated as well. Those countries are also gradually increasing their production volumes, as a result of which, classification concerns are becoming increasingly prominent. The advance ruling system will allow manufactured goods to be classified before arriving in the territory of the importing country, and in the case of administrative or judicial issues, remedies could be more promptly available. Moreover, the TFA can also help tackle counterfeiting and piracy, as advanced rulings and pre-arrival processing require the examination of related information before the entry of goods into a custom territory.

It may nevertheless take some time before the full concrete effects of the trade facilitation process materialise, especially with respect to developing countries and LDCs. Developed countries like the US and the Member States of the European Union already have customs practices that are mostly in line with the objectives set out in the TFA. Developing countries and LDCs, by contrast, will have to pass a number of administrative and legislative reforms in order to fully implement the TFA.

This reality is acknowledged in the TFA, which provides for financing and capacity building mechanisms for developing countries and LDCs. The TFA also grants developing countries and LDCs with certain flexibility for the timing of the implementation of the agreement, while developed countries have to implement the full agreement upon its entry in force. Several developing countries, including India, China and Brazil, have already indicated that they will make use of this flexibility.

Consequently, it will take some time before the TFA will show its beneficial effects to the fullest. Nevertheless, the agreement already represents a fundamental stepping stone toward a more expeditious international trading system, by streamlining good customs practices to the benefit of economic operators engaged in import and export from all over the world.

Renato Antonini is a partner at Jones Day. He can be contacted on +32 2 645 1419 or by email: rantonini@jonesday.com.